The introduction of corporate tax on businesses in the UAE brought upon a pivotal shift in financial strategies of companies based in the country.
But what is it all about?
Corporate tax was introduced in UAE 1st of June, 2023, and is a form of direct tax that is applicable on the net income and profits of all corporations operating under a commercial license in the UAE. Foreign entities and individuals would only be required to pay corporate tax if they conduct business or trade activities within the country, along with real estate, construction, agency, and brokerage businesses.
Companies are required to register for Corporate Tax within the first 3 months of beginning operations – if they delay the registration, they could incur penalties as high as AED 10,000.
According to the Ministry of Finance, corporate tax rates are 0% for businesses earning AED 357,000 annually, and 9% for those earning above AED 357,000 annually.
However, certain businesses are exempted from paying corporate tax, such as
- Businesses that engage in extracting natural resources,
- Businesses that earn capital and dividends from qualifying shareholders
- Intra-group transactions and reorganizations that meet the necessary criteria.
Additional exemptions to Corporate Tax include:
- Foreign investors’ income earned from capital gains, interest, royalties, and other investment returns.
- Individuals earning salary or other source of income, be it from the public or private sector.
- Investment in real estate by an individual’s personal capacity.
- Dividends, capital gains and other earnings by individuals from owning shares or other securities in their own capacity.
- Interest and other source of income earned from bank deposits or saving schemes.
It would be important for companies to understand corporate tax compliances according to their unique operations, activities, and regulations in order to be well-versed with them.